Investment - Rise Investor Exchange
Funding can be a scary topic for a small fashion brand. Some find the prospect of entering the financial universe daunting (especially with all its related jargon), while others are sceptical about losing the freedom that comes with being a sole owner.
That said, as businesses scale, the cash requirements for larger and larger collections, investment in staff, premises and expertise, often lead fashion start-ups to an inevitable conclusion. The next stage of their growth requires an injection of cash.
This could be through a number of channels including family and friends, angel investors, venture capital, institutional investment, crowdfunding or debt financing. Often the size of the business will steer a company towards a certain funding source, but there will generally be a decision to be made by an owner for one over another.
Some businesses may choose to grow organically and it’s up to the owners to decide what type of business they want to become. Is this a lifestyle business? or is the aim to become something larger? Do they want the responsibility and formality that having an investment partner brings? Do they want to take on the risk of debt to finance the business in return for retaining their equity?
These are all difficult and quite personal questions that need to be evaluated in advance.
Investment is not a given in the fashion business, like it is in technology for example. Tech start-ups need to scale or fail fast because innovation or competitors will supersede them. There is less urgency in that regard for fashion businesses. Many are by nature up-to-date and demand will always be there.
However, the needs of other industries to be fast, leads to well-trodden paths for investment. In fashion, the investment universe is far more fragmented. Creative industries are not a rigid science, especially given the various paths to success available, so clear routes are more difficult to form around them. Every journey is different.
We recently held the UKFT Rise Investor Exchange dinner, which aimed to bring investors and brands from across the fashion spectrum together. The evening allowed free and open discussion between brand owners and investors, allowing both sides to ask and answer questions.
Below is a brief outline of some of the funding sources represented on the evening:
Institutional Investment (represented by Yasha Estraikh – Piper Private Equity): Institutional investment generally works in a cycle, with funds operating for fixed time periods (such as 5 years). Investors are looking to put money to work, grow the business and prepare for exit once the fund matures. This type of investment is generally suitable for businesses that have reached a turnover of around £5m+ and want to become a more established brand. Companies may have matured from a venture capital fund to institutional.
Venture Capital (represented by Jamie Gill – Eiesha Ltd’s fashion VC fund): VC funds are generally looking to invest in companies that have proved their concept to around the £1m turnover level or above. Specialist funds may be quite hands on in putting in the building blocks to scale the business as well as helping put in the human capital that may be required to take the business to the next stage (such as finance directors and sales specialists).
Crowdfunding (represented by Julia Elliott Brown - Enter The Arena): One of the newest forms of financing and one that can have the added bonus of being an effective marketing tool. Companies set their own valuations and the public can invest in the business directly (starting at nominal amounts). While companies might achieve significant valuations, if the campaign is not successful then no money changes hands. Top tips include having 30% of your funding pre-agreed (to validate it to the crowd), making a compelling video, and explaining what the funding is for and how it will help growth.
Debt Finance (represented by Paul Surtees – Capitalise.com): Perhaps the most traditional funding route. Debt can be an effective way for businesses to fund their growth and may prove cheaper in the longer-term than selling equity. Debt comes with risk (and lenders may require some type of collateral) but for companies confident in the return on their investment, borrowing might be the most suitable way of retaining their ownership, while keeping their cashflow healthy. It can also be a valuable tool for brands looking to fund orders (such as wholesaling to department stores) where they may not get paid for sometime.
Ultimately, the choice on funding for an owner is a tricky one. As has been proved too many times in the past, cashflow keeps businesses alive (or sees them fail) and fashion business tend to come to points where they need that investment to grow. Thinking about your funding plans well in advance and making the relevant contacts early will only help you make the right decision for your business if (or when) the time comes.
If you want to be involved in the next UKFT Rise Investor Exchange, please make sure you are signed up to receive our updates.
Author: Patrick Dudley-Williams, UKFT Rise Committee member and founder of UK menswear brand, Reef Knots.